When making a credit card payment, be careful to pay the right amount. There’s a closing balance, a minimum payment, a monthly payment, an interest free days payment (if you have an outstanding balance transfer amount) and part payments. Which one should you choose? Just paying the lowest of these could, ironically, cost you more in the long term.
Note: If you have a NAB StraightUp Card, please refer to section 3.4 of the terms and conditions (PDF, 2.3MB) to see how your monthly payments work.
If you can afford it, you should pay off the closing balance in full by your statement’s due date. This is the total amount you owe for that statement period, including interest and purchases. If you pay your closing balance in full by the due date, not only do you not pay interest on the purchases you made that month, it also gives you interest-free days for purchases you make in the next month (as long as you continue to pay the full closing balance each month). However, if you have a balance transfer, you will only need to pay your 'interest free days payment' to be entitled to interest-free purchases.
But, we understand that paying off the closing balance mightn’t be possible. So, your next option should be to pay off as much as you can above your minimum monthly payment. We’ll call it a ‘part payment’.
While it’s more than the minimum payment amount (which we’ll touch on shortly), making a part payment doesn’t pay off the full closing balance, or if you have a balance transfer, the interest free days payment. This means you won’t avoid paying interest completely by making a part payment.
There are pros and cons to making a part payment.
Your goal when making payments is to reduce your balance and interest—making a part payment will help you to do this. Doing so also keeps your card below the approved credit limit and helps you avoid late payment fees.
But because you’re not paying your statement off in full (your ‘closing balance’), or your interest free days payment, you’ll still be charged interest. Because you did not pay off in full, or your interest free days payment, on time, you have lost your interest-free days on purchases. To restart your interest-free period for purchases, either:
Sometimes your monthly payment and total minimum payment will be the same amount. But sometimes they won’t.
The total minimum payment is the total of the monthly payment and any past due or over-limit amounts that you’ll have to pay before the due date. This is the minimum contracted amount you’ve agreed to pay each statement. Paying at least this amount by its due date helps you avoid a late payment fee (so you can keep using your card).
But the downfall is it’ll take a long time for you to pay off your balance. Even if you’ve reached your credit limit and stop using it for purchases, the interest will increase as long as there’s a balance to pay off.
And what if you’re paying less than the minimum amount? This will work against you. Not only will you still pay interest, but you’ll be charged a month’s worth of interest calculated on your balance for each day of that statement period. And you’ll lose your interest-free days for the next statement period. And if you didn’t pay your balance in full, or if you have a balance transfer your interest free days payment, for the previous month, you could now be paying interest on interest. It adds up. Paying less (now) means paying more (eventually).
If you’re struggling to pay off your card, you need to talk to us as soon as you can. If so, head over to our Financial Hardship section. We’re here to help however we can.
A monthly payment is the amount due from purchases and transactions you’ve made during your monthly statement period. We work this out by looking at your closing balance for that month.
If your closing balance is:
While you have a balance transfer, to avoid paying interests on purchases make sure you pay your interest free days payment in full by the due date each month.
But how much you pay does make a difference in the next statement period, because…
The daily interest is based on that day’s closing balance. That’s the total of everything you haven’t paid back (including fees, purchases and cash advances), plus any interest charges.
By making a part payment, you reduce your opening balance for the next statement period. But because you haven’t paid the balance in full, or if you have a balance transfer your interest free days payment, you won’t have any interest-free days, so you’ll still get charged interest every day based on the daily closing balance. So by making a bigger part payment you’ll reduce your daily balance, which reduces the amount of interest you’ll pay.
The only way to prevent interest charges adding up is to pay your closing balance in full, or if you have a balance transfer your interest free days payment. It’s the only way to get your interest-free days on purchases for the next month.
Credit cards issued by National Australia Bank Limited. © 2016 National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686
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